Issue
Does disclosure by a company of an amount of tax losses deducted at label R of item 7 of its company income tax return for the 2004-05 income year provide notification to the Commissioner, in the approved form, for the purposes of item 4 of the table in subsection 171A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) where the company is not required to complete a Losses schedule 2005?
Decision
Yes, where a company is not required to complete the Losses schedule 2005 and it discloses an amount of tax losses deducted at label R of item 7 of its company income tax return for the 2004-05 income year, it is at this point that the company notifies the Commissioner, in the approved form, that it had a tax loss in an earlier nil year that is carried forward to the 2004-05 income year for the purposes of item 4 of the table in subsection 171A(1) of the ITAA 1936.
Facts
Company X incurred a tax loss in the 2002-03 income year and consequently lodged a nil liability company income tax return for the 2002-03 income year in June 2004.
Company X utilised a portion of this carried forward loss in the 2003-04 income year and carried forward the remainder to the 2004-05 income year where the loss was fully utilised.
Company X lodged its company income tax return for the 2004-05 income year in July 2006. Company X disclosed an amount of tax loses deducted in the 2004-05 income year at label R of item 7 of the income tax return.
The amount of the loss carried forward to the 2004-05 income year was not large enough to require the lodgment of a Losses schedule 2005 and Company X did not meet any of the other conditions for lodging this schedule.
Company X is not a member of a consolidated group at the end of the 2004-05 income year.
Reasons for Decision
Section 171A of the ITAA 1936 limits the period within which the Commissioner can make an original assessment for nil liability income tax returns for the 2003-04 and earlier income years. Essentially, an original assessment can only be made for these nil years within a limited period according to the circumstances and information provided to the Commissioner. This is tabled in subsection 171A(1) of the ITAA 1936.
Item 4 of the table in subsection 171A(1) of the ITAA 1936 provides that where: • the liability for the 2003-04 income year or an earlier income year is nil (the 'nil year') and the taxpayer had a tax loss in the nil year, and • some of this loss has been carried forward to the 2004-05 income year, and • the taxpayer notified the Commissioner in the approved form that they had a tax loss in the nil year the Commissioner has 6 years from the later of: • when the notification is received, or • when the taxpayer lodges the income tax return for the nil year to issue an original assessment for the nil year.
The approved form for the purposes of item 4 of the table in subsection 171A(1) of the ITAA 1936 is the Losses schedule 2005 that taxpayers are required to complete and send together with their 2004-05 income tax returns. Where a taxpayer does not meet the conditions for lodging a Losses schedule 2005, disclosure of the amount of tax losses deducted at label R of item 7 in the 2004-05 income tax return constitutes notification to the Commissioner, in the approved form, that the taxpayer had a tax loss in the earlier nil year that is carried forward to the 2004-05 income year for the purposes of item 4 of the table in subsection 171A of the ITAA 1936.
In this case Company X made a tax loss and lodged a nil liability company income tax return for the 2002-03 income year in June 2004. Some of Company X's tax loss from the 2002-2003 income year was carried forward to the 2004-05 income year as evidenced by it disclosing an amount of tax loss deducted at label R of Item 7 in its 2004-05 company income tax return. Company X was not required to lodge a Losses schedule 2005.
For the purposes of item 4 of the table in subsection 171A(1) of the ITAA 1936, Company X notified the Commissioner in the approved form when it lodged its company income tax return in July 2006.
Accordingly, the Commissioner has until July 2012 to issue Company X an original assessment for the 2002-03 income year.